The way procurement is viewed by organisations is a major issue for those in the industry. Procurement has been seen in the past as a “centre of cost” rather than a “centre of profit”.
A centre of cost is perceived as just that – a part of the company which takes away rather than adds to the bottom line, which is how a centre of profit would be seen. There is then surely an educational element to the future development of procurement; business leaders need to understand more readily exactly where procurement sits in business priorities.
Today’s procurement solution is linked to four key areas which each have a role to play in any organisation; supply chain failure, reputational risk, brand protection and compliance and audit. The links between these elements and the procurement function have never been so pronounced with the rise of globalisation and the evolution of social media. Although cost reduction is still regarded as the “bread and butter” of any procurement department, responsibilities will typically go well beyond this into risk management and supply chain audit. It is also telling that CPOs are playing a more advisory role, working with other departments like sales and finance (often seen as centres of profit) to work on strategy and planning.
One of the difficulties for procurement teams in large organisations is showing that cost benefit. CPOs are focusing on gathering the evidence of the value they contribute. Now, with the advent of technology and particularly in-depth analytics and data management, procurement teams can highlight spend analytics and track savings. Within procurement, the use of data is becoming more prolific as the benefits become clearer; data can be used to mitigate risk, show spending relationships, offer a global perspective, create prediction models and depict a complete view of a supplier.
The use of data analytics allows organisations to gain a single view of a particular supplier, so for example the ability to view spend engagement or any historical financial commitments. The idea is that once a central view of the data from one particular supplier has been identified, a company can begin to show your influence and ultimately the impact you are having on the bottom line. With the right data, procurement teams can leverage better agreements with suppliers, can put risk mitigation processes in place and begin to link the whole procurement function back to the key pillars mentioned at the start: supply chain failure, reputational risk, brand protection and compliance and audit.
Using data is not only about a clear cost/profit margin but also about risk and reputation management. With the constant and ever changing news agenda and the power of social media, if something goes wrong within your supply chain it will likely become a major issue very quickly. Evidence would suggest that companies who suffer a serious reputational issue find their company value falling by 5-20 per cent. These are big numbers with potentially highly serious implications for the liquidity of a business. Questions will be asked about the supplier, the relationship, the auditing and the ethics of their business practices. Having a single view of a supply chain with all the global data available to your organisation can make navigating these episodes a lot easier and with greater clarity, it falls to procurement professionals to push data to the fore of their teams and businesses.
☛ Nathalie Fekete is European leader for procurement transformation at IBM UK.